Clyne v. Deputy Federal Commissioner of Taxation.
Judges:Mason ACJ
Court:
High Court of Australia
Mason A.C.J.
This is an application under O. 70, r. 12 of the High Court Rules for a removal of a stay of proceedings which came into operation under the Rules when the appellant Mr. Clyne lodged security in the sum of $100 in connexion with his appeal to this Court from a decision of the New South Wales Court of Appeal.
The facts material to the application may be shortly stated. The appellant was assessed to tax in the years ended 30 June 1977, 1978 and 1979 (including provisional tax for the year ended 30 June 1980) in the sum of $364,976.98. The Deputy Commissioner, the respondent to the appeal, commenced an action in the Supreme Court of New South Wales against the appellant for that amount and additional tax for late payment less credits. The appellant's defence to the action was that the assessments were invalid. He contended inter alia that the relevant section under the Income Tax (Rates) Act 1976 (Cth.) and the Income Tax Assessment Act 1936 (Cth.), as amended (``the Assessment Act''), were ultra vires the Commonwealth Parliament because they discriminated between parts of States and contravened sec. 51(ii) and 99 of the Constitution and because they attempted to authorize the acquisition of property without providing just terms pursuant to sec. 51(xxxi) of the Constitution. He also sought to argue that the assessments were invalid because they were made for improper purposes not authorized by the Assessment Act.
The primary judge (Hunt J.) found for the Deputy Commissioner, giving judgment in his favour for $334,826.25 with costs, after allowing for credits which included an amount of $108,829.07 recovered by the Deputy Commissioner from a bank and a building society with which the appellant had deposited moneys. The Court of Appeal dismissed an appeal from this decision with costs.
Meantime the appellant had taken steps under Pt. V of the Assessment Act to appeal against the assessment. He appealed to the Supreme Court of New South Wales against his assessment to tax for the year ended 30 June 1977. The appeal was dismissed for want of prosecution on 1 March 1982. An appeal against that dismissal was dismissed by the Full Court of the Federal Court on 20 August 1982. It is now conceded by the appellant that the tax assessed in respect of that year was correctly assessed if the two constitutional questions already mentioned are resolved adversely to him. The appellant's appeals in respect of his assessments for the years ended 30 June 1978, 1979 and 1980 were referred to a Board of Review. The hearing took nine days in September of this year. The Board reserved its decision, announcing that it would give its decision before Christmas 1982.
I was informed that it is a somewhat unusual course for the Deputy Commissioner to commence proceedings for recovery in a Court relying on a notice of assessment
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which is under challenge in proceedings under Pt. V of the Assessment Act. It is to be hoped that this is so. The institution of proceedings for recovery on a notice of assessment which is challenged in proceedings under Pt. V may operate oppressively and unfairly to a taxpayer. Fortunately, and this is conceded by Mr. Priestley Q.C., for the Deputy Commissioner, the Courts in which recovery is sought have a jurisdiction to stay or adjourn recovery proceedings when the notice of assessment is under challenge in Pt. V proceedings, insisting, if it be appropriate, on the taxpayer giving suitable security or a suitable undertaking to meet the exigencies of the situation.In the ultimate analysis the Deputy Commissioner's charter to commence recovery proceedings, notwithstanding a challenge in Pt. V to the correctness of the assessment, is to be found in sec. 201 of the Assessment Act. It provides:
``The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending.''
It is a provision which has been stringently criticized. However, it appears to be impervious to criticism for Parliament has not seen fit to amend it.
After obtaining judgment in the Supreme Court the Deputy Commissioner issued a bankruptcy notice based on the judgment. This notice was set aside by the Federal Court on 13 August 1982. On the same day the Deputy Commissioner issued a second bankruptcy notice. The appellant sought to have it set aside on the ground that there was a bona fide dispute as to the extent of the debt. Lockhart J. delivered judgment on this application on the day in which the present application came on before me. His Honour refused the application in the exercise of his discretion, holding that the appellant intended to do everything in his power to delay the proceedings between himself and the Deputy Commissioner for as long as possible and that he had no intention of paying any moneys to the Deputy Commissioner, notwithstanding the existence of the Supreme Court judgment, his avowed purpose being to frustrate and delay the Deputy Commissioner in every way possible in his attempt to recover the tax which was due. His Honour stated that to defer the operation of the bankruptcy notice would merely place another weapon in the appellant's hands to delay and defeat the Deputy Commissioner. His Honour went on to say that the proper time for the Court to consider whether its discretion should be exercised in favour of the appellant is upon the hearing of any petition to sequestrate his estate, thereby preserving the rights of creditors in the event that an act of bankruptcy is committed in respect of the existing bankruptcy notice leading to the presentation of a petition for sequestration.
The issue which Lockhart J. was called upon to determine is different from the issue which arises before me. It was for his Honour to decide whether, having regard to the proceedings in the Board of Review, it was appropriate to set aside the bankruptcy notice. I am required to decide whether the automatic stay which came into operation under the Rules should be lifted, or whether the appellant should be required to give security, having regard to the existence of his appeal and the issues which it raises, the proceedings in the Board of Review being a subsidiary consideration.
The appellant submits that I should make no order in favour of the Deputy Commissioner on this application unless I am satisfied that special circumstances are shown to exist. For my part I doubt whether it is correct to speak of the onus which confronts an applicant for an order under O. 70, r. 12 as one which requires him to show special circumstances. I am inclined to think that all that an applicant needs to show is that in the circumstances of the case it is fair and just between the parties that the stay should be removed or that additional security should be provided. But I put this question to one side because it seems to me that the circumstances of this case may be described as ``special'' in the sense in which the appellant used it in his argument.
The fundamental question in this case, as it seems to me, is what are the appellant's prospects of success in his appeal? If his
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prospects are slight, and this is my assessment of them, then in my view it would be unjust and unfair to the Deputy Commissioner to prevent him from giving effect to the judgment of Lockhart J. and taking the bankruptcy proceedings at least to the stage where a petition for sequestration is presented, in the event of non-compliance by the appellant with the existing bankruptcy notice. To prevent the Deputy Commissioner from proceeding further at this stage would be to expose him to the risk that such assets as the appellant has may be transferred out of Australia or otherwise disposed of. The appellant has offered an undertaking not to transfer assets out of Australia. That undertaking is not acceptable to the Deputy Commissioner. Such an undertaking was offered to Lockhart J. who refused it. The material referred to in his Honour's judgment certainly provides a strong foundation for refusing to accept the undertaking which has been offered to me. Some, but not all, of that material is before me and the appellant has stated that he proposes to appeal against the order made on the ground that some findings made by his Honour are not supported by the evidence. However, having regard to the material which is before me and to the absence of any evidence at all from the appellant as to what are his assets, I am not prepared to place reliance on the appellant's undertaking. There is in my opinion a risk that, if the stay continues, assets of the appellant will be transferred out of Australia or otherwise disposed of, pending the final determination of his appeal.This brings me back to a brief examination of the appellant's grounds of appeal to this Court. On the discrimination point he has to meet the unanimous and adverse decision of this Court in
F.C. of T. v. Clyne (1958) 100 C.L.R. 246, for once more he relies on the presence of sec. 79A in the Assessment Act as creating a preference and thereby constituting a discrimination in association with other provisions. Webb J. held that sec. 79A did not discriminate between States or parts of States or constitute a preference. Dixon C.J. (with whom the other members of the Court agreed) held that, on the assumption that sec. 79A of the Assessment Act and the Schedule did attempt to give a prohibited preference and to discriminate it was invalid and did not become part of the Assessment Act at the time when Act No. 4 of 1945, of which it was part, sought to introduce it into the Assessment Act. The crucial problem was whether the Income Tax Act 1945 (Cth.), which contained a provision that the Assessment Act should be incorporated and read as one with the Income Tax Act, incorporated ``the Assessment Act as it is written or as it validly exists''. Dixon C.J. concluded that the Taxing Acts incorporated the Assessment Acts ``not so to speak as pieces of paper but as valid laws of the Commonwealth'' (p. 268). True it is that his Honour spoke of having reached this conclusion ``not without some hesitation''. But his conclusion was endorsed by all the other members of the Court except Webb J. who had no occasion to express a view about it. The decision has stood unchallenged for twenty four years and it is not suggested that its foundations have been undermined or eroded by any developments in the law in the interregnum. In this situation I must proceed on the footing that the decision presently reflects the law and that the appellant's prospects of having it overruled are at best slight. I should perhaps add that the judgments of Gibbs J. and Stephen J. (with whom I agreed) in
A.G (N.S.W.); Ex rel. McKellar v. The Commonwealth (1977) 139 C.L.R. 527, at pp.550 and 560, adopt the general approach taken by Dixon C.J. in Clyne, though they do not deal with the construction of an incorporation provision.
The appellant's second ground of appeal - the acquisition of property point - is likewise beset with difficulties. Again Clyne's case is a daunting obstacle. There it was argued that the imposition of provisional tax and its later return without interest in the event that there was no tax accruing due was an acquisition of property on terms not just. The argument was summarily rejected by the Court, Dixon C.J. observing (at p. 263):
``Little need be said of the argument based upon sec. 51(xxxi) of the Constitution. The argument is that `provisional tax' is paid provisionally and returned without interest in the event of no tax accruing due. That is said to be an acquisition of property on terms not just. Once it is held that provisional tax is
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authorised by sec. 51(ii.) it seems absurd to say that, within the meaning of sec. 51(xxxi.) the sums paid or payable as provisional tax constitute property acquired for a purpose in respect of which Parliament has power to make laws. The purpose of the power itself which is conferred by sec. 51(ii.) is to acquire money for public purposes and that is no less so if the money is raised provisionally and in advance of the actual accrual of the tax as debitum in praesenti solvendum in praesenti.''
The essence of his Honour's comment is that there is no acquisition of property in such a situation. The imposition of tax which is not provisional is an a fortiori case. Consequently to say that Clyne's case is distinguishable because it related to provisional tax is to identify a distinction which makes no difference.
The view of Dixon C.J. has been expressed by other members of this Court more recently. The judgments of Gibbs, Stephen and Aickin JJ. (with whom I agreed) in
T.P.C. v. Tooth & Co. (1979) ATPR ¶40-127; 26 A.L.R. 185, at ATPR pp. 18,365, 18,376 and 18,392-18,393; A.L.R. pp. 192-193, 204 and 229-230 all affirm the proposition that a law which is a law with respect to taxation is not a law providing for the acquisition of property.
The appellant seeks to give an extra dimension to the argument in the present case by pointing to sec. 175, 177(1) and 201 and asserting that they constitute a statutory procedure whereby the property of an individual may be confiscated without his receiving fair compensation. In this respect he relies on this Court's recent decision in
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 55 A.L.J.R. 451. There it was decided that the effect of sec. 175 and 177 is to preclude a taxpayer, once a notice of assessment is produced, from contesting that the Commissioner has made an assessment or that he has failed to comply with statutory formalities. What the taxpayer is entitled to do is to dispute his substantive liability to tax in Pt. V proceedings. Wilson J. and I pointed out that those proceedings ``protect the taxpayer and enable him to have his liability to tax determined'' (ATC p. 4288; A.L.J.R. p. 456). If he so chooses he may insist on having his true liability to tax determined by the Courts. The existence of sec. 201 certainly enables the Commissioner to recover judgment on an assessment and execute before a taxpayer has exhausted his rights under Pt. V to challenge the assessment. But as we have seen, and as the Deputy Commissioner concedes, the Courts have the power to do justice between taxpayer and Commissioner by adjourning or staying proceedings on appropriate terms.
The appellant's argument that the effect of the sections according to Bloemen is that a taxpayer is not entitled to relief if all that he can show is that an assessment issued for an improper or unauthorized purpose ignores the provision in sec. 190(b) that it is for the taxpayer to show that the assessment is ``excessive'' and that an assessment ``made in purported but not justifiable exercise of a statutory power'' could properly be regarded as excessive (
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263, at p. 282, per Taylor J.; Bloemen at ATC p. 4288; A.L.J.R. p. 456, per Mason and Wilson JJ.).
The consequence is that the appellant is still confronted with the task of showing that the imposition of taxation is an acquisition of property, a proposition summarily rejected in Clyne's case in its application to a tax levied provisionally which would be recouped without interest, if it proved ultimately not to be owing. Likewise, in the case of tax which is not provisional, if the Deputy Commissioner recovers tax on an assessment which is successfully challenged under Pt. V there will be a recoupment of the tax already recovered.
The appellant's final ground of appeal is an attempt to challenge Bloemen so that he can raise the issue of improper or unauthorized purpose in the proceedings the subject of the appeal. He intends to ask the Court to reconsider Bloemen. It is sufficient to say that Bloemen is a very recent and unanimous decision of the Court, that its reasoning has not been affected by any subsequent decision and that no grounds have been put to me which would justify a reconsideration by a Full Court.
In the end, then, Clyne's case and Bloemen stand as formidable barriers between the appellant and success in his appeal, compelling the conclusion that his prospects
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of success are at best slight. In these circumstances, having regard to the risk that the appellant may transfer his assets out of Australia or otherwise dispose of them, it is appropriate that the stay be removed.The Deputy Commissioner sought in the alternative an order for security in the sum of $200,000. No argument was directed to this aspect of the application. The appellant did not suggest that an order for substantial security should be made in lieu of removal of the stay.
In the result I order that the stay be removed and that the costs of this application be the respondent's costs in the appeal.
ORDER
Order that the stay which arose under O. 70, r. 12(2) on the lodging of security by the appellant be removed.
Order that the costs of the application be the respondent's costs in the appeal.
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